Slab house a deal breaker?

Question

I’m just starting as a investor in the Saint Louis market. The majority of the houses that I have encountered have a basement. Occasionally a house that has potential is sitting on a slab. My real estate agent tries to talk me out of the slab houses every time. Was wondering what the general consensus is about a slab vs a basement foundation.

Michael Temple · Answer

@Richard Bickel III I would caution you to be careful on these. Not necessarily avoid them, but just be careful. Last year I came across what I thought was a fantastic deal. A house in a great area priced 40K below market. I made an immediate offer at asking price and my offer was accepted. The house was on a slab and had no attic. It was an open vaulted ceiling with floor to ceiling windows on a slab.

Normally this wouldn't have been a problem, except in this house the owner had some electrical issues and decided to take the cheap way out to repair it by running all the wiring outside the walls in channels like you would find in an industrial application. I didn't think anything about it at the time and moved to inspection. My inspectors and electrician flagged the issue and explained that while what they did wasn't wrong it was ugly and to put things back to normal and make it look good that they would have to completely tear out the walls and ceiling to run all new wiring because there was no attic or basement to run the wiring and we had to get new wiring to the other end of the house.

My numbers simply wouldn't work if I had to almost gut the house to run all new wiring and then replace all that work. I had tried re-negotiating with the owner, but they refused to come down so I had to walk. I ate the inspection fees, which was minor compared to what could have happened if I had moved forward.

So I won't say never do it, but you need to be very careful. Houses like I described can be a real problem if you need to run new electrical, plumbing, or HVAC stuff because it is either buried under the slab or in this case, had no attic to run it either. This can make repairs to these systems VERY expensive.

My numbers simply wouldn't work if I had to almost gut the house to run all new wiring and then replace all that work. I had tried re-negotiating with the owner, but they refused to come down so I had to walk. I ate the inspection fees, which was minor compared to what could have happened if I had moved forward.

So I won't say never do it, but you need to be very careful. Houses like I described can be a real problem if you need to run new electrical, plumbing, or HVAC stuff because it is either buried under the slab or in this case, had no attic to run it either. This can make repairs to these systems VERY expensive.

David Ounanian · Answer

Hi @Richard Bickel III there's no issue with investing in slab foundation homes in St. Louis.  I have done both.  It's actually less maintenance for rentals.  You just need to make sure when you are running comparable sales that you are only using other slab homes.  As a general rule of thumb the slab homes tend to sell for 10-15% less than similar homes with a full basement foundation.

Wren Martin · Answer

@Richard Bickel III I think a little hesitancy is healthy, it makes you ask all the right questions.  Just don't let it hold you back from taking action.  If you're working with a good realtor who understands real estate investing and investors than part of the decision process will be "If" the realtor thinks you can quickly flip the property.  Your realtor should be able to give you a good feel for what the property will be worth after all repairs (ARV = After Repair Value) and a good idea of what those repairs should include.  An experienced realtor may even give you a good ballpark cost of those repairs but  get a good, local contractor to price the full Rehab so you have numbers backed up by someone who can/will do the work for that price.

If your realtor works with investors and investment real estate in your area (not all do, nor do they all understand investing) and your being told to stay away from houses that don't have basements then I would follow that advice on the first deal or two.  You can follow your instincts on future deals after you have some experience.

Michael Ablan · Answer

@Richard Bickel III  - I'm also not a fan of slabs?  Why?  Because the water, drain and sometimes heating source is buried in concrete.  I buy a lot of foreclosures here in Upstate NY, meaning all of those lines that are buried in concrete have frozen and burst.  Now I have to go through the attic, which isn't a good idea because attics are supposed to stay cool in the winter, yet I need those pipes to stay warm so they don't burst.  This doesn't even touch in on the drain lines.  If you have an issue with those, then you're busting up all the concrete floor.

Want to move a bathroom?  Sorry, but you have to bust out the concrete floor to move the drain line.

You're also losing out on the opportunity to market storage space or additional bedroom/living sqft.   You also need an above ground room dedicated to your mechanical like furnace, water heater, main water, filter system, ect, so you lose usable sqft in the main house.

I did a flip that was on a slab, and it's the last one I'll ever do unless the deal is a home run.  Too many headaches associated with not having access to underneath your 1st levels subfloor.

Wren Martin · Answer

@Richard Bickel III - Your Agent is possibly, probably trying to guide you to the most common house in your area.  Maybe since most houses have basements, most people will want a basement.  But that doesn't mean everybody wants a basement or that if the house doesn't have a basement nobody will want it.  There's an old saying "Horses for Courses, and Courses for Horses," which means there's something for everyone and someone for everything.

If the deal makes sense, and the house will work for what you want (Fix and Flip, BRRR, or???) then try it.

Frank Maratta · Answer

@Michael Temple

I use wire mole in all my rentals. Keeping it on the baseboard and painting it, you can’t even tell.  Tenants don’t mind it. But if your flipping, the seller may or may not. It Can sometimes save a ton since the multis I buy are built early 1900s and have plaster instead of sheet rock. If the house had sheet rock, I might open the walls and run it correctly. Once you start messing with plaster, might as well take the whole wall your working on down.  A good electrician can old work it all making very minimum openings.

Adam Springer · Answer

I try to exclusively buy slabs for buy and hold.  In my experience they have less of a chance for tenant neglected water issues than a crawl/basement would have.  Im not sure if soil is different in St Louis than here (Fort Wayne, IN), but is definitely my preference here.  There are things to watch out for in slabs though... If the house has ductwork in the slab, check the ductwork for rust.  It isn't uncommon for water to make its way into the ducts on homes where water isnt properly routed away from the house.  Just like with any foundation, look for gaping cracks on the outside of the slab.

John Teachout · Answer

I would suggest to avoid the unicorns in your market. Here in Georgia, basements are rare and most homes are on a crawl space or slab. So it wouldn't be a thing here but obviously in your area, it's not as common.

Michael Temple · Answer

@Frank Maratta Interesting. I had never heard of this stuff before. I will have to look into it to see if under certain circumstances it would be a good solution. In my previous example, it probably wouldn't have been a good fit. It was a nice higher end house and while I was planning on keeping it as a rental I would have liked the option to flip it later easily and that would have meant having it look like new so to speak, but that still sounds like a great thing for other situations. Thanks!

Richard Bickel III · Answer

Thank you all for the feedback! All great opinions.  Seems like as a rental it is ideal. As flip though, maybe not the best investment. This would be a flip(my first I might add) for me and my agent is concerned about getting stuck with it and not being able to sell it.

Slab house a deal breaker?

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